Editorial: Will South Africa Latch Onto the Continent’s Emerging Oil Boom?

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Written by Jeffrey Cavanaugh

South Africa has long been viewed as a country poor in oil resources. During the dark days of apartheid, when economic sanctions restricted oil imports, the country was reduced to gaming sanctions monitors and depending on its vast coal reserves to fuel the economy through a large, state-directed program to convert coal to liquid fuel oil.

Today, with domestic power demand outstripping supply and with labor unrest in South Africa’s mining sector hobbling investment and growth, two technologies widely used in the U.S. may be set to transform South Africa’s energy economy. What are these technologies? Hydraulic fracturing – also known as “fracking” – and deep-water, offshore oil drilling.

Both technologies come with costs and risks. How South Africa can trim those costs and hedge those risks will greatly determine whether Africa’s largest, albeit struggling, economy will manage to participate in the continent’s emergent energy-led economic boom. To South Africa’s north, for instance, in countries like Mozambique, Kenya, and Tanzania, prospectors from many international oil firms have been making historic discoveries, including the world’s largest offshore gas field off the coast of Mozambique.

Currently, South Africa ranks 80th in the world in terms of crude oil production, producing only 1.43 million barrels of oil a year out of a total consumption of just under 225 million barrels per year. This vast discrepancy in production and consumption is made up with imports, which amount to nearly 428,000 barrels of oil a day, and the conversion of domestic coal reserves to liquid fuels – which accounts for some 35 percent of all liquid fuels consumed in the country.

Clearly, increasing domestic oil production would do wonders for a country so dependent on imports. It would improve South Africa’s balance of payments and free up coal now currently being rendered into liquid fuel for domestic use for export to China and India – both of which are adding many new coal-fired power plants. The coal could also be used to fire power plants in South Africa itself, which desperately needs investment in the utilities sector in order for its manufacturing sector to remain competitive.

Most important still, the additional revenues that an oil boom might bring for South Africa’s government – which since the end of apartheid has come under increasing pressure to lessen the economic gap between the wealthy white minority and the mostly poor black majority. Oil revenues could go some way in doing that by providing Pretoria with the funds it needs to shore up faltering social services and provide expanded educational, health, and housing opportunities for poor blacks tired of waiting interminably for progress to occur.

Oil revenues might also go some way in patching up emerging fissures in the ruling African National Congress party, which has shown increasing strain in recent years. Such monies, if spread around liberally, would paper over growing differences between the ANC’s establishment, business-friendly faction and more radical elements, primarily based in its youth wing, that have grown increasingly critical of the economic status quo.